by JP Nicols
JP Nicols, CFP, is CEO of the advisory firm Clientific and has served in various industry leadership positions, most recently as Chief Private Banking Officer for U.S. Bank. He writes about the intersection of leadership, advice and innovation on his blog at jpnicols.com.
Disruption of long-held paradigms and business models are common themes in fintech generally, and at Finovate especially. Some of the most notable traction to date has been in the payments and personal finance space.
Now, innovative specialty lenders and crowdsourcing platforms are also breaching what had long been banks’ deepest moat — the ability to leverage and monetize their balance sheets.
Wealth management in the digital age
The wealth management business has been less commoditized, and some firms have deployed impressive intellectual capital to help clients grow, preserve and transfer their wealth. Despite the rise of digital personal finance platforms and tools, clients with higher levels of wealth and complexity need and want advice from time to time.
A recent American Banker article cited a KPMG survey that said 9 out of 10 banks were considering a major overhaul of their strategy, and 40% said that wealth management was essential to growing revenue. For good reason. Wealth management operations are typically efficient users of capital, represent lower risk business models and are higher producers of precious fee income.
It makes sense for incumbent firms to increase investment in higher-margin businesses while new entrants are left to focus on lower-cost solutions. This is the classic pattern of disruptive innovation as described by Clayton Christensen and others.
Then as these new entrants gain market share, they inevitably move upmarket. In fact, that is already happening.
From the underbanked to the overbanked
There has been considerable discussion about the unbanked and underbanked, people who either cannot or will not use traditional financial institutions. Prepaid cards, payday loans, check cashing, remittances and other services that fill the gaps have seen new innovations and new investments from both inside and outside the industry.
On the other hand, wealthier households, or the overbanked, have no shortage of providers eager for their profitable business. But disruptive forces are at play here from two areas:
- Smaller firms which differentiate with high touch, lower client/advisor ratios, better defined market niches and more responsive service.
- High-tech competitors with better user interfaces, more robust web and mobile tools and sophisticated analytics.
The convergence zone
The effectiveness of those two approaches varies somewhat along demographic lines, but it’s not as simple as assuming all older customers prefer high-touch while the younger set always wants a technology solution.
Web and mobile adoption rates in older age groups rise with higher income, and affluent customers are looking for something more than a stock jockey with a briefcase full of papers.
On the flip side, even the savviest do-it-yourself millennial wants help from an expert every now and then, and simply replacing the irrelevant stock jockey with a prettier, but equally irrelevant, screen full of dials and charts isn’t enough for many.
So these powerful forces are beginning to converge in a couple of exciting ways:
- Enterprise solutions have been gaining traction at Finovate. Past alums like InStream and Balance Financial created inviting portals for advisors to manage their business and collaborate with clients in ways previously not possible.
- A few firms have built their own advice and back-office platforms behind compelling interfaces. Finovate alums like Wealthfront and Betterment offer low-cost professional money management to every investor.
Three firms to watch at FinovateFall 2012
I will be paying particular attention to three firms that are contributing to the convergence of high tech and high touch at FinovateFall 2012:
- Personal Capital a Best of Show winner at FinovateSpring 2012, leverages it’s PayPal and Intuit DNA (CEO Bill Harris led those companies too) to create what they call a "next-generation financial advisor completely personalized around you." Users can easily get started for free with their attractive and useful PFM tool, then upgrade to their money management services.
- MoneyDesktop is another Best of Show winner at Finovate Spring 2012 that brings a slick mobile- and tablet-friendly PFM desktop with customizable widgets as a white label solutions for FIs stuck with outdated interfaces. They recently acquired MoneyReef to further bolster their mobile PFM offerings.
- Actiance: Fear of running afoul of FINRA, SEC and other compliance requirements is one of the barriers in large wealth management firms’ struggle to be relevant in social media, and significant intellectual capital too often remains in proprietary channels as a result. Actiance has been a very visible solution provider with their Socialite platform, and at Finovate they will be showing off their integration with Salesforce to further integrate social data.
I will be back after the show with my thoughts on the latest developments in wealth management and track th
e convergence through integrated offerings and enterprise solutions.
Changing the world is hard. Changing bank IT departments takes a little longer.
1. Image licensed from ShutterStock
2. For more on Personal Capital and the rise of the truly virtual financial institution, see OBR #198 (Oct 2011, subscription)